Submission on Health Promotion Levy related to Sugar Sweetened Beverages: Effect on Concentrates

1. Submission on Health Promotion Levy related to Sugar Sweetened Beverages: Effect on Concentrates Mary-Jane Morifi Tiger Brands Limited 31 May 2017

2. Tiger Brands Beverages • Beverage products manufactured and sold by Tiger Brands include Fruit Squashes, Fruit Nectars, Fruit and Sport Drinks and Cordials/Syrups. Brands include Oros, Halls, Energade, Roses, Low Cal, Esto and Fouro.

3. Three previous submissions made to Parliament/Treasury regarding Taxation of Sugar Sweetened Beverages • 22 August 2016: To Treasury in response to the Policy Paper on Taxation of Sugar Sweetened Beverages (“Policy Paper”) • 27 January 2017: To the Standing Committee on Finance and Portfolio Committee on Health on the Policy Paper • 31 March 2017: To Treasury and SARS on the Health Promotion Levy proposed in the Draft Rates and Monetary Amounts and Amendment of Revenue Laws Bill of 2017

4. The basis of the previous submissions and this submission is to indicate the inequitable treatment of concentrates if the proposed health promotion levy is applied as is. • After the last Parliamentary hearing, a separate levy for concentrates was proposed which was half of that of a Ready-to-drink beverage (RTD), thus1.05 c per gram of sugar per100 ml of concentrated beverage compared to 2.1 c per gram of sugar per 100 ml. • Although this acknowledged that concentrates needed to be addressed differently it still results in the inequitable treatment of concentrates compared to RTD beverages.

5. This is due to the following 3 reasons: • The application of a single rate to all concentrates does not take into consideration the different dilution ratios of concentrated beverages (e.g. 1:3 or 1:5 etc.). • If the rate of 1.05 c per gram of sugar is applied to the sugar content of the undiluted product, it will result in a higher sugar levy per 100 ml diluted product than the sugar levy of an equivalent RTD product. Best illustrated with an example:

6. The levy on a 500 ml RTD beverage with a 5 g per 100 ml sugar content: 5g/100 ml - 4g/100ml = 1g/100 ml X 2.1c/g = 2.1 c per 100 ml The proposal is that sugary beverages will be taxed at source at a rate of 1.05 c per gram of sugar that exceeds 4g/100 ml. Therefore the sugar levy on a squash that has 20 g of sugar but needs to be diluted 1:3 to yield 5 g per sugar/100 ml (as per the above example) is as follows: 20g/100 ml - 4g/100 ml = 16g/100ml X 1.05c/g = 16.8c/100ml Once diluted, the tax would be 16.8c/4 = 4.2c/100ml The above example means that a consumer will pay 4.2 c/100 ml of sugar tax for a concentrate compared to 2.1c/100 ml of an RTD product with the same sugar content.

7. Concentrates with a sugar content at or below 4 g per 100ml diluted would not be tax exempt if the 1.05 c sugar levy is applied to the sugar content of the concentrated beverage. RTD beverages would be able to apply the 4 g threshold and be incentivised to reduce the sugar content but there would be no such incentive for concentrates

8. Tiger Brands proposes that the rate of the sugar levy on concentrates is the same as that of RTD beverages but taxed on the sugar content of the diluted concentrate in order to ensure equitable treatment between a concentrate and RTD beverage.

9. Intrinsic sugar • The proposed definition of sugar content includes ‘intrinsic sugar’ and other ‘sweetening matter’. • Nectar and squash products are legally in terms of the Agricultural Products Standards Act, 1990 required to have a minimum amount of fruit juice: 6 % for squashes and variable for nectars depending on the type of fruit • The ‘intrinsic sugar’ content of a beverage, should not be subject to the sugar levy, only ‘added sugar’ should be taxed

10. Threshold • Threshold of 4 g were proposed in National Treasury Policy Paper. • The Bill proposes 5 g • We propose that we do not deviate from the Policy Paper.

11. END THANK YOU